I'm trying to fill out an insolvency worksheet and I don't know what to do about the house information. We have a mortgage on a home and owe around $105,000. So that would go in the liability section.
Assuming the Fair Market Value was $100,000, would I put that amount in the asset section, even though I don't really own it?
My guess is yes, but I'm not sure. (I keep thinking an asset might only be for a home that are owned, free and clear.)
Thanks.
Think about what you said and what you saw - if it was ONLY for an asset owned free and clear do you think they'd ask for a mortgage or loan amount?
Enter the FMV of the home in the asset section. BUT be sure to be as accurate as possible. The best way would be to get an appraisal, but that's costly. You can use various web sites, like zillow.com or cyberhomes.com, to get an idea of what the FMV is. And remember to use the FMV AT THE TIME YOU WERE INSOLVENT, which isn't necessarily today.
It's likely that you need to do this because you got a 1099-C for cancellation of debt income and you want to use the insolvency rule, instead of bankruptcy, to exclude that from income. Look at the DATE they cancelled the debt and use that date for all your values - THAT is what the IRS is looking for.
Keep in mind that it is entirely possible to be insolvent on Monday, have debt forgive on Tuesday and as a result be solvent on Wednesday. That's why its important to use the right dates.
Good luck, Gene E. Utterback, EA, RFC, ABA
BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.